VG Koblenz: Managing director liable for tax debts

The managing directors of a German Unternehmergesellschaft (entrepreneurial company), UG for short, are liable for the company’s trade tax debts. That was the decision of the Verwaltungsgericht Koblenz (Administrative Court of Koblenz) (Az.: 5 K 526/15.KO).

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: According to a judgment of the VG Koblenz from November 13, 2015, directors’ liability extends to the trade tax debts of a UG.

In the instant case, the sole managing director of a UG was held liable for the trade tax debts of the company which had been established in 2009. On August 9, 2012, she received the final trade tax assessment notice for the years 2010 and 2011. She neither paid the taxes, nor did she respond to payment reminders or enforcement orders. Although she had filed for insolvency on behalf of the firm as early as June 2012, this was rejected in November 2012 due to a lack of assets. The company was wound up and removed from the commercial register.

In August 2013, the relevant municipality brought an action in the form of a payment order against the managing director as the debtor liable to pay the trade tax debts. Due to the fact that she still had not submitted any tax returns, the amount of trade tax due had been estimated by the tax office. After it emerged that her objections had been fruitless, the managing director took legal action against the payment order, arguing that no fiscal damages had been incurred and that the estimated figures were unrealistic; the UG had generated nothing but losses.

The VG Koblenz rejected the claim. As the sole managing director of the UG, she was obligated to submit tax returns for the company and pay the taxes. The 5th Chamber of the VG Koblenz held that she had intentionally breached this duty as managing director, as well as her duty of care towards the company’s assets. The Court went on to say that the tax liabilities were accrued prior to the UG’s insolvency, which meant that it had still been possible to pay the taxes. The estimated sums were said to have only come about because the managing director had neglected her duty to submit tax returns, and one also has to pay estimated taxes.

If managing directors of a corporation breach their duties, they may end up being liable with their private assets. They along with other executive organs can turn to lawyers who are competent in the field of company law when liability or contractual issues arise.

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